1. Fiscal stabilization
in the euro area
Mahmood Pradhan
Deputy Director, European Department
OCED-France Stratégie workshop
February 5, 2019
2. 1
Euro Area Policy Stance
0
50
100
150
200
250
Euro area United
Kingdom
United
States
Japan
Gross Public Debt, 2012
(Percent of GDP)
-4
-2
0
2
4
6
8
Euro area United
Kingdom
United States Japan
Output Gap and Structural Deficit, 2013
(Percent of potential GDP)
Structural deficit
Output gap
Source: World Economic Outlook.
3. 2
Few Euro Area Countries Have Fiscal
Space
Fiscal Space Assessment (2017)
ITA PRT ESP FRA DEU NLD
Availability of financing
Have sovereign bond spreads breached benchmarks in the last 3 months? 0 0 0 0 0 0
Do debt profile indicators breach benchmarks?
Share of public debt held by non-residents 1 1 1 2 2 2
Change in share of short-term debt 0 0 0 0
External financing requirements (percent of GDP) 2 2 2 0 0
State of debt burden indicators
Does debt level breach the benchmark during projection period? 2 2 2 2 0 0
Do gross financing needs breach the benchmark during projection period? 2 0 0 0
Desk Bottom-Line 2 2 2 2 0 0
Source: IMF staff.
4. 3
Countries With Large Output Gaps
Had High Debt
Austria
Belgium Cyprus
Estonia
Finland
France
Germany
Greece
Ireland
Italy
Luxembourg
Malta
Netherlands
Portugal
Slovak Republic
Slovenia
Spain
0
50
100
150
200
-16-14-12-10-8-6-4-20
PublicDebt
Output gap
Public Debt and Output Gap, 2013
(Percent of GDP)
Source: World Economic Outlook.
5. 4
A Moderately Sized CFC Can Provide
Meaningful Stabilization
-7
-6
-5
-4
-3
-2
-1
0
t-4 t-2 t t+2 t+4
Impact of Large Shock on Output Gap
(Percent of GDP)
Without
CFC
With CFC
0
1
2
t-4 t-2 t t+2 t+4
Size of Fund
(Percent of GDP)
Build up Draw
down
Source: IMF staff calculations.
6. 5
Not Enough Debt Reduction In Good
Times
21 21
36
65
85
99
0
20
40
60
80
100
120
140
1970 1980 1990 2000 2010
France
CEPR euro
area
recessions
Debt
49
56
95
100
115
131
0
20
40
60
80
100
120
140
1970 1980 1990 2000 2010
Italy
Government debt
(percent of GDP)
Source: CEPR, AMECO.